Bluetooth has been constantly evolving since it was conceived in 1994. The most recent update of Bluetooth, Bluetooth v4.0, is just beginning to gain traction in the consumer electronics industry, but some of the previous versions are still widely used. Here's a rundown of the commonly encountered Bluetooth versions:
The v1.x releases laid the groundwork for the protocols and specifications future versions would build upon. Bluetooth v1.2 was the latest and most stable 1.x version.
These modules are rather limited compared to later versions. They support data rates of up to 1 Mbps (more like 0.7 Mbps in practice) and 10 meter maximum range.
Bluetooth v2.1 + EDR
The 2.x versions of Bluetooth introduced enhanced data rate (EDR), which increased the data rate potential up to 3 Mbps (closer to 2.1 Mbps in practice). Bluetooth v2.1, released in 2007, introduced secure simple pairing (SSP), which overhauled the pairing process.
Bluetooth v2.1 modules are still very common. For low-speed microcontrollers, where 2 Mbps is still fast, v2.1 gives them just about everything they could need. The RN-42 Bluetooth module, for example, remains popular in products like the Bluetooth Mate and BlueSMiRF HID.
Bluetooth v3.0 + HS
You thought 3 Mbps was fast? Multiply that by eight and you have Bluetooth v3.0's optimum speed -- 24 Mbps. That speed can be a little deceiving though, because the data is actually transmitted over a WiFi (802.11) connection. Bluetooth is only used to establish and manage a connection.
It can be tricky to nail down the maximum data rate of a v3.0 device. Some devices can be "Bluetooth v3.0+HS", and others might be labeled "Bluetooth v3.0". Only those devices with the "+HS" suffix are capable of routing data through WiFi and achieving that 24 Mbps speed. "Bluetooth v3.0" devices are still limited to a maximum of 3 Mbps, but they do support other features introduced by the 3.0 standard like better power control and a streaming mode.
Bluetooth v4.0 and Bluetooth Low Energy
Bluetooth 4.0 split the Bluetooth specification into three categories: classic, high-speed, and low-energy. Classic and high speed call back to Bluetooth versions v2.1+EDR and v3.0+HS respectively. The real standout of Bluetooth v4.0 is Bluetooth low energy (BLE).
BLE is a massive overhaul of the Bluetooth specifications, aimed at very low power applications. It sacrifices range (50m instead of 100m) and data throughput (0.27 Mbps instead of 0.7-2.1 Mbps) for a significant savings in power consumption. BLE is aimed at peripheral devices which operate on batteries, and don't require high data rates, or constant data transmission. Smartwatches, like the MetaWatch, are a good example of this application.